Opening a savings account for emergency funds helps individuals and families weather uncertain financial times. Without careful planning and a personal savings account dedicated to saving for life events, it can be difficult to manage a significant financial emergency, such as a job loss, essential home repair, or major illness. Money Market accounts and standard savings accounts are typically used as emergency funds. Just remember, it’s important to have easy access to your money when you need it, so make sure the account you use allows you to make necessary withdrawals without penalties. Start saving now to build up funds to cover at least three months of expenses in case of an unexpected emergency.
Avoid using emergency funds for everyday spending
It can be tempting to dip into your emergency fund reserves for a vacation or new car stereo. However, they’re there to serve as your safety net first. If you have other savings goals, open a separate savings account and plan accordingly so you can enjoy your vacation while retaining your emergency funds. Learn what to save for and how to spend your emergency funds responsibly with these tips.
Cover rent, food and essential bills
Whether you’ve had a roommate unexpectedly move out, experienced an increase in your housing payments, or are out of work for a few months, your emergency funds can help cover your basic needs. If you or your partner become unemployed, you can use your emergency funds to pay for essentials, such as rent or mortgage payments, food, power, water and gas. Estimate how much you need to save based on your living expenses and start building your security net in a personal savings account.
Make repairs after a natural disaster
Sometimes people experience temporary losses after a natural disaster, such as a flood, hurricane, tornado, or earthquake. In these cases, government assistance may not be available to help your family right away. Have emergency funds stowed away in an easily accessible personal savings account, especially if you live in a high risk area. This will allow you to feed and house your family or travel to a safe location in case of extreme weather conditions.
Set up a savings account for healthcare expenses
It’s no secret that healthcare costs have been on the rise for years. Even with insurance, an unexpected accident or illness can cost you thousands. In 2012, insured Americans paid an average of $2,200 of out-of-pocket expenses, such as co-payments and deductibles. If you have critical healthcare needs or want to save in case of an accident or major illness, make sure your emergency savings account has adequate funds available. You can also look into opening a health savings account (HSA) with your bank or financial institution. An HSA allows you to set aside money to pay for qualifying out-of-pocket medical expenses, tax-free.
Cover unexpected home or car repairs
Whether you have a busted water main flood your garage, need a new fuel injector for your car, or had a fallen tree damage your roof, dealing with home or car repair emergencies is never fun. But if you own a home or a car, you will inevitably have to face them. Plumbing emergencies can cost anywhere from $500 to $5,000, a new roof can exceed $10,000, and a new fuel injector can cost upwards of $3,000. Saving for life events like this can help you be prepared for the pricey, but essential, repairs.
Take advantage of a golden opportunity
Sometimes it isn’t bad news that warrants a withdrawal from our emergency funds. Once in awhile, you might come across a financial, business or personal opportunity that could change your life. Maybe you’re being offered a chance to invest in a promising start-up or that space you’ve wanted for your small business just went up for sale. Financial opportunities do not always last long. Sometimes we only have a short time frame to seize them. Having a robust personal savings account for major life events can help you take advantage of these opportunities as they arise.
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